Homebuyers' deposit guarantees are gaining popularity as first-time buyers find life tough due to interest rate rises and the global credit crunch.

Prospective homeowners struggling to raise enough cash for a deposit can buy a guarantee which is then taken instead of the down payment.

Major UK housebuilders such as George Wimpey and Barratt Developments are signing up with companies offering exchange bonds to replace a lump sum on exchange of contracts.

Mainly used for buying a house off-plan, the bonds allow investors to defer paying a deposit until the property is completed. An administration fee is charged on the bond along with a premium, which is dependent onthe length of bond purchased.

Ray Boulger, of mortgage broker John Charcol, said the bonds are most useful for those facing a delay between completion and exchange.

Buyers should consider using them, he said, if the charges on the bond are lower than the interest which could be earned if the deposit money was invested elsewhere. They are more than likely to be cheaper than borrowing money, he added.

Companies offering bonds for homebuyers include XBond, which has deals with housebuilders Barratt and Redrow, and the Exchange Insurance Company, which has links with Taylor Wimpey.

With homebuilders' share valuations struggling due to a bleak market outlook it is likely more developers will offer bonds to make sales easier.

Kevin Belsham, from Taylor Wimpey, said: "The introduction of the Exchange Bond has had an immediate positive impact on sales."

Buying a bond instead of paying a deposit for a house can be cheaper than getting a loan from the high street, provider XBond has claimed.

The company's bonds, underwritten by Zurich Insurance, charge a £99 fee and offer interest rates of three per cent for a six-month bond and up to 9.5 per cent for 18 months.

The bond gives buyers breathing space and the full asking price of the property is paid on completion.

Gladedale Home Counties offers an exchange bond because it says it can help homebuyers better manage their finances.

Vicky Noon, sales and marketing director of the firm, said: "It's a fairly sophisticated tool for financial management and will not therefore be for everyone, but there are many reasons why homebuyers might want to actively manage their cash liquidity during an extended purchase period.

"Several companies offer similar products and these may be more attractive to many people than realising other investments earlier than they have to, or borrowing the full amount of a deposit prior to selling their own properties.

Previously in such circumstances, saving or borrowing the full amount of the deposit up front was the only available option."

Housebuilder Redrow uses the Zurich Property Deposit Guarantee, which is available through XBond.

Simon Bennett, Redrow's group marketing director, said: "For various reasons, purchasers may not be able to or may not wish to part with a sizeable deposit at the point of exchange.

"A prime example would include downsizers, who can raise a Zurich PDG to exchange on their purchase without the need to sell their existing home immediately, arrange an equity release or interrupt savings plans.

"At the same time it could also suit a first-time buyer, where the guarantee could be raised against the parents' financial status, allowing a property to be selected off-plan and then make use of the construction period to save the deposit in full."

Nick Gardner, director of financial advisers Chase De Vere, said a bond "can potentially be cheaper and less risky than a bridging loan".

He added: "It also protects purchasers if a developer goes bust and for off-plan purchases where there may be a long gap between exchange and completion."

For a small premium, said Gardner, a bond means that clients can invest money elsewhere or not have to dip into their stocks and shares or savings.

'The introduction of the exchange bond has had an immediate positive impact on sales'